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CHAPTER 9- DOMESTIC AND CHAPTER 9- DOMESTIC AND INTERNATIONAL TRANSPORTATION INTERNATIONAL TRANSPORTATION Principles of Supply Chain Management: A Balanced Approach Prepared by Daniel A. Glaser-Segura, PhD

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Page 1: Chapter 8 Chapter 9

CHAPTER 9- DOMESTIC AND CHAPTER 9- DOMESTIC AND INTERNATIONAL TRANSPORTATIONINTERNATIONAL TRANSPORTATION

Principles of Supply Chain Management:

A Balanced Approach

Prepared by Daniel A. Glaser-Segura, PhD

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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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IntroductionIntroduction

In 2002 there was $8.4 Trillion in US freight

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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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IntroductionIntroduction

Without transportation methods a supply chain can not exist…

But why wouldn’t we ever have transportation methods in the world???

•1934 Longshoreman Strike•2002 Slowdown, The Resolution•Current ILWU Situation•But its not just strikes… Katrina

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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Impact of Transportation on Supply Impact of Transportation on Supply Chain ManagementChain Management

Time utility- products are delivered at the right time. Place utility- products are delivered to the desired location.

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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Fundamentals of TransportationFundamentals of Transportation

The Objective of Transportation- Satisfying customers while minimizing costs & making a profit contribution.

Legal Forms of Transportation-

•Common carriers- Offer transportation services to all shippers at published rates between designated locations without discrimination. TSI Website•Contract carriers- Not bound to serve the general public. Contract carriers serve specific customers under contractual agreements.•Exempt carriers- Exempt from regulation of services & rates & if they transport certain exempt products like produce, livestock, coal, or newspapers.•Private carrier- Not subject to economic regulation & typically transports goods for the company owning the carrier.

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

The Modes of Transportation

Motor Carriers (trucks)- most flexible mode of transportation & account for over 80 % of U.S. freight. Trucks compete w/rail & air for short-to medium hauls. Weather is primary disadvantage.•Less-than-truckload (LTL) carriers or truck-load (TL) carriers. LTL carriers move small shipments & fees are higher.•General freight carriers carry the majority of goods shipped & include common carriers. •Specialized carriers transport liquid petroleum, household goods, building materials, & other specialized items.

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

Rail Carriers- compete most favorably when the distance is long & the shipments are heavy or bulky.

– Rail relatively slow & inflexible, rail roads have begun purchasing motor carriers & can thus offer point-to-point pickup & delivery service known as trailer-on-flatcar (TOFC) service.

– Rail companies use each other’s rail cars. Keeping track of rail cars & getting them where they are needed can be problematic.

– Railroad infrastructure & aging equipment are also problems for the railroads.

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

Air Carriers- Very expensive relative to other modes but also very fast. Air carriers transport about 5 % of the U.S. freight bill.

– Airlines cannot carry extremely heavy or bulky cargo. – For light, high value goods that need to travel long

distances quickly, most small cities & towns do not have airports.

– Half of the goods transported by air are carried by freight–only airlines, ex. Fedex.

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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

Water Carriers- Inexpensive, slow & inflexible. Include inland waterway, coastal & intercoastal, & deep-sea.

– Inland waterway transportation is used for heavy, bulky, low-value materials (e.g., coal, grain). Competes w/rail & pipeline.

– Water carriers are paired w/trucks to enable door-to-door delivery.

– Supertankers are +1,500 ft long & 200 ft wide.

Pipeline Carriers- Limited in variety they can carry. Little maintenance once pipeline is running. Materials hauled in a liquid or gaseous state.

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

Intermodal Transportation- Combinations of the various transportation modes, is becoming an extremely popular method.

– Trailer-on-flatcar (TOFC), container-on-flatcar (COFC), piggy-back service. The same containers can be placed on board containerships & airliners.

– ROROs or roll-on-roll-off containerships truck trailers & containers to be directly driven on & off the ship, without the use of cranes.

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

Third-Party Logistics Services- intermediaries facilitate use of the transportation alternatives.

– Freight forwarders- consolidate shipments to fill trucks or rail cars.

– Transportation brokers- handle transportation requirements of shippers. legally authorized to act as agents on shippers behalf.

– Shipper’s Associations- non-profit orgs that move member’s cargo. Consolidate members’ shipments to get volume discounts.

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

Transportation Pricing– Cost-of-service pricing- varies based on volume and distance.– Value-of-Service Pricing- services priced at market bearing

competitive levels. A profit maximizing pricing approach.– Terms of Sale- price includes transportation FOB destination free

on board to the shipment’s destination.• FOB Destination• FOB Origination

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WarehousingWarehousing

Crossdocking- to receive, breakdown, repackage, & distribute components to a manufacturing location or finished products to customers warehouse. Today’s warehouses are more correctly referred to as distribution centers.

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Warehousing- Cont.Warehousing- Cont.

Consolidation Warehouses - Collect large numbers of LTL shipments, consolidate, then transport in TL or CL quantities.

Private Warehouses- Refers to warehouses that are owned by the firm storing the goods.

– Owning offers greater control, provides better workforce utilization, & can generate income & tax advantages through leasing of excess capacity &/or asset depreciation.

– Nonetheless, owning a private warehouse represents a financial risk & loss of flexibility.

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Warehousing- Cont.Warehousing- Cont.

Public Warehouses- owned by for profit organizations that contract their services to other companies.

– Breakbulk: shipments are broken down & items are combined into specific customer orders.

– Repackaging: items are repackaged for specific customer orders.– Assembly: final assembly operations to satisfy customer requests.– Quality inspections: perform incoming & outgoing quality

inspections.– Material handling, equipment maintenance, & documentation

services.– Storage.

•Pro- Provide the flexibility & investment cost saving. •Con- Disadvantage lack of control.

•Reverse logistics services disposition of returned products

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Warehousing- Cont.Warehousing- Cont.

Warehouse Location– As the number of warehouses increases, the system becomes

more decentralized. Responsiveness & delivery service increase. – However, warehousing operating & inventory costs also increase.

Trade-off between costs & customer service must be considered.

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Warehousing- Cont.Warehousing- Cont.

Warehouse Location Strategies proposed by Edgar Hoover– Market-positioned strategy- warehouses close to customers to

maximize distribution svcs & improve transp. economies of scale.– Product positioned strategy- warehouses close to the sources

of supply to enable the firm to collect goods & consolidate these. – Intermediately positioned strategy- warehouses midway

between the sources of supply & the customers when distribution requirements are high & product assortments come from various locations.

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International Transportation IssuesInternational Transportation Issues

International Freight Security- Conflict between U.S. govt. & industry toward more security & restrictions for inbound shipments.International Intermediaries

– Customs Brokers- move shipments through customs & handle documentation.

– International Freight Forwarders- move goods from production to foreign destination w/ surface & air transportation.

– Trading Companies- Put foreign buyers & sellers together & handle all of the export/import arrangements.

– Non-Vessel-Operating Common Carriers- operate like freight forwarders but use scheduled ocean liners.

– Global Logistics Service Providers- Companies like DHL & UPS offer total global logistics solution.

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International Transportation Issues- International Transportation Issues- Cont.Cont.

Land Bridges- Intermodal movements between Europe & East Asia utilize the United States as a land bridge.

Foreign Trade Zones (FTZs) secure sites in U.S. under supervision of U.S. Customs. FTZs bring goods into the site & offer storage, exporting, manufacturing, assembly, repacking, testing, & repairing services.

North American Free Trade Agreement began on January 1, 1994, & removes most barriers to trade & investment among U.S., Canada & Mexico.

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E-Commerce and TransportationE-Commerce and Transportation

Electronic Invoice Presentment & Payment- A recent development designed to create greater efficiency among companies.

Supply Chain Visibility Technologies- Time managed benefit. Consisting of planned movement of freight; immediate rates & special service fees; make orders; trace shipments; manage other elements of shipments.

Third-Party Electronic Transaction Platforms- Allow shippers & carriers to perform various transactions over the Web. These sites provide freight matching services, auctions, & on–line communities or marketplaces.

Offshore Information Technology Outsourcing- U.S. IT service providers are contracting with offshore IT providers for software development services.